As US and Iran near deal to reopen Strait of Hormuz, global economy faces long recovery

The deal and immediate reaction

A memorandum of understanding between the United States and Iran, announced this week, aims to end a war that has choked off the Strait of Hormuz since late February. The tentative truce is expected to be signed on Friday, with a senior US official saying the waterway would be "open toll-free for 60 days." Terms of the ceasefire remain secret, and the pact is an interim step, not a final resolution. Oil markets reacted swiftly: crude prices fell to their lowest levels since early March, and US gasoline dropped to a national average of $4.04 a gallon, down from $4.52 a month ago, according to AAA.

Oil and gas prices, and overall inflation, will plummet once the Iran situation is resolved.

Political pressures

Even as pump prices edge lower, Republicans close to the White House worry the relief may come too late to shift voter sentiment before the midterms. A POLITICO poll in May found more than 60 percent of voters say the war made life more expensive, and the party had been battling cost-of-living concerns even before airstrikes began. One Republican admitted, granted anonymity, that "to really change a voter's mood" was unlikely with so little time. The White House argues Trump can repeat his first-term economic record now that the war is ending, but the gap remains large: gasoline is still more than $1 above pre-war levels.

Reopening the strait proves difficult

Restoring normal traffic through the chokepoint is not a matter of simply lifting a blockade. Shipowners worry about mines and further attacks, and even after the strait opens, hundreds of stranded tankers will take weeks or months to deliver their oil and gas to destinations in Asia and Europe. Jorge León, head of geopolitical analysis at Rystad Energy, cautioned that the memorandum is a de-escalation, not a resolution, and the oil market has entered "a more uncertain, more volatile" phase. Damaged Gulf infrastructure and snarled supply chains mean production cannot be quickly restored to pre-war volumes.

Global energy order reshaped

The four-month war has pushed some economies toward structural changes that outlast any truce. China, the world's largest oil importer, cut purchases to 7–8 million barrels per day in May, down from 11–12 million in 2025, surprising analysts. South Korea and Japan have turned to more coal, while a broader search for alternatives is accelerating the shift to renewable power. Daan Walter of energy research group Ember noted that wind and solar generated more electricity globally than gas in April for the first time. "What was barely competitive five years ago is now clearly cheaper," he said.

If you had surveyed oil market analysts at the start of the year and asked what the oil price would be if most supply through the strait were disrupted for more than 100 days, few would have told you less than $100 a barrel.

An uncertain path forward

Analysts caution that markets must price the current deal as fragile, not as a return to normal. Gregory Brew of Eurasia Group remarked that the ease with which Iran closed the strait, and the ineffectiveness of US measures to reopen it, was the biggest surprise. Joseph Webster of the Atlantic Council pointed to China's quiet shock absorption as another unforeseen factor. Even if the pact evolves into a lasting peace, economists expect the world to be "kicked onto a path of lower growth and higher prices" for years, as Patricia Cohen notes. Energy insecurity has reshaped trade relations, strained political leaders, and left scars that will shape investment and policy long after the guns fall silent.